California apartment rents show West's biggest changes

Posted: Thursday, January 23, 2003

SAN FRANCISCO -- A sturdy economy saddled Southern Californians with the West's highest apartment rent increases last year while a high-tech shakeout continued to deflate prices in the San Francisco Bay area, according to a study released Tuesday.

Apartment rents rose by 7 percent in Southern California's hottest market -- San Bernardino and Riverside counties -- and fell 9 percent in the heart of the Silicon Valley, according to figures compiled by RealFacts, a Novato research firm.

California's fluctuating rents contrasted with most other major Western markets covered by RealFacts. In the regions outside California, rents barely changed everywhere but Tucson, Ariz., where prices climbed by nearly 4 percent to an average of $609 per month.

RealFacts polled 7,400 apartment complexes in 10 states.

The 2002 data reflected a trend that began to emerge in early 2001 as the aftershocks of the dot-com bust began to jolt the Bay Area apartment market.

As the high-tech slump deepened, once-booming Silicon Valley and San Francisco companies fired more and more workers. The purge prompted many people to leave the Bay Area, driving up apartment vacancies and forcing landlords to lower rent that had soared during the region's flush times.

Even as the Bay Area has struggled, Southern California has remained on stable ground, largely because of a more diversified economy. The movie industry -- a Southern California stronghold for decades -- also has thrived, helping to insulate the region.

Those dynamics contributed to Los Angeles County's average rent of $1,299 at the end of 2002, a 6 percent increase from the previous year, according to RealFacts.

The 7 percent increase in San Bernardino and Riverside counties -- known locally as the Inland Empire -- pushed average monthly rents to $892. In San Diego County, average rents climbed 5.5 percent to $1,140 while rents in Orange County increased 2.5 percent to $1,231.

Even with those gains, Southern California rents remained below the Bay Area's still-lofty cost of living.

In the three-county San Francisco metropolitan area, the average rent stood at $1,621, a decrease of nearly 7 percent from 2001. In the Silicon Valley hub of Santa Clara County, a 9 percent decrease left rents at $1,372.

Sacramento, located about 100 miles east of San Francisco, was the only Northern California market surveyed by RealFacts to produce higher rents in 2002, largely because prices in the market remain a relative bargain.

The average rent in the Sacramento metropolitan area was $873 in December, an annual increase of just under 4 percent.

California was the only place in the West where apartment rents averaged more than $1,000. The Seattle market was the most expensive outside of California with an average rent of $858, a 0.2 percent decrease from the previous year.

Although Bay Area prices remain the highest in the West, most apartment renters are enjoying major savings from just a couple of years ago.

For instance, the December 2002 average rent in Santa Clara County was 29 percent below the December 2000 average -- a savings of $565 per month, or $6,780 annually.

In the San Francisco metropolitan market, December 2002 rents had dropped by 20 percent in two years, a savings of $416 per month, or $4,992 annually.

On the flip side, rising rents in Southern California have been pinching budgets. For instance, Los Angeles rents have increased by 11 percent in two years -- costing $128 more per month, or $1,536 annually.

While Bay Area rents have eroded dramatically, home prices in the region are even higher than they were two years ago. A mid-priced home sold for $416,000 in November, a 9 percent increase from November 2000, according to the most recent information from DataQuick Information Systems.

Southern California home prices also are surging at a much faster pace than apartment rents. In November 2002, the average Southern California home sold for $288,000, a 32 percent increase in two years, DataQuick said. DataQuick expects to release California's December home prices later this week.

The paradox of falling rents and rising home prices in the Bay Area has raised worries that high-tech workers burned by bad investments in the stock market are shifting too much money into the real estate market.

A phenomenon like that could raise Bay Area home prices to an unsustainable level and eventually burden buyers with houses worth less than the prices they paid for them, said economist Ed Leamer of the UCLA Anderson Forecast.

But other analysts say such concerns overlook the additional buying power created by the lowest mortgage rates in decades. Even though Bay Area prices are higher than two years ago, the typical mortgage payment is lower -- $1,915 in November 2002 versus $2,082 in November 2000, DataQuick said.

Southern California's hotter housing market is forcing buyers to pay more per month than in late 2000, according to DataQuick. The typical mortgage payment in Southern California was $1,326 in November 2002, up 11 percent from $1,195 in November 2000.

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